🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
Accounting
1
answer
0
watching
52
views

Discuss whether the required financial statement disclosures, suchas Management discussion & Analysis, Audit reports aresufficient to provide supplemental information to the financialstatements. Is there anything missing that you would like tosee?

Watch
1
answer
0
watching
52
views

For unlimited access to Homework Help, a Homework+ subscription is required.

Deanna Hettinger
Deanna HettingerLv2
28 Sep 2019

Unlock all answers

Get 1 free homework help answer.
Already have an account? Log in
Share

Related questions

The General Accounting Office prepared a report showing thatmany publicly-owned companies restated their financial statementsduring the period 1997 to 2001. Of course, they did not includehappenings such as the situation reported in The Wall StreetJournal, which told its readers that Qwest Communications (whichowns one of the Bell telephone companies) had restated its priorfinancial statements four times from July 2002 to February2003.

Assume that on one of the Sunday television news programs,whether Sunday morning as in Meet the Press or Sunday evening suchas 20/20, an accounting professor was being interviewed. "Hello,professor. Tell our viewers a little about yourself." "I amProfessor Blahblah. I am a certified public accountant, I amlicensed to practice as a certified public accountant, I have anearned doctorate in accounting, and I presently teach auditing atthe university level. Sometimes the department also has me teach acourse in accounting information systems, which I teach as a way ofdesigning accounting systems to provide information to decisionmakers." "What do you think of this situation of Qwest restatingits financial statements four times in seven months?" "Oh, this isterrible. The management of Qwest had a duty to file auditedfinancial statements with the SEC, and to provide those auditedfinancial statements to each of the company's stockholders.Naturally, those financial statements were required to be truthful.The accounting firm which audited those financial statements had aduty to design its audit to assure itself that those financialstatements were free of material misstatement, whatever the cause.If Qwest restated its financial statements four times in sevenmonths, then as they say in law, res ipso loquitur, which means'the thing speaks for itself.'" In other words, the very fact thatthe company restated its financial statements four times in sevenmonths, and by material amounts each time, suggests that neithermanagement nor the auditors did what they were obligated todo."

"Thank you, Professor Blahblah. Do you think our millions ofviewers should know anything else?"

"Yes, I do. If management was making decisions based on thosewrong numbers, then management probably made some bad decisionswhich they would not have made if they would have used correctnumbers."

"Thank you very much, Professor Blahblah. Let's hope that noneof our millions of viewers was among the people who sufferedfinancially as a result of what management and the auditors did orfailed to do."

Required:

1. Does the audit firm which gave clean opinions on thoseoriginal sets of financial statements have any obligation to doanything now about those earlier audit reports? Cite theauthoritative professional literature.

2. Design an audit program for asserted and unasserted claimsagainst this client company. Cite the authoritative professionalliterature related to the claims, and show how your audit programfulfills your professional responsibilities.

Thanks

17-41

Russ Major, CPA, drafted the following report on October 25,2015 at the completion of the engagement to compile the financialstatements of Ajax Company for the year ended September 30, 2015.Ajax is nonpublic organization in which Major's child has amaterial direct financial interest. Ajax decided to omitsubstantially all of the disclosures required by GAAP becasue thefinancial statements will be only for mangement's use. Thestatement of cash flows was also omitted because management doesnot believe it to be a useful financial statement.

Identify the deficiencies contained in Major's report on thecompiled financial statements. Group the deficiencies by paragraphwhen applicable. Do not redraft the report.

To the Board of Drictors of Ajax Company:

I have complied the accompanying financial statements ofAjax Company as of September 30, 2015, and for the year then ended.I planned and performed the compilation to obtain limited assuranceabout whether the financial statements are free of matrialmisstatements.

A compilation is limited to presenting information inthe form of financial statements. It is substantially less in scopethatn an audit in accordance with generally accepted auditingstandards, the objective of which is the expression of an opinionregarding the financial statements taken as a whole. I have notaudited the accompanying financial statements and, accordingly, donot express any opinion on them.

Management has elected to omit substantially all of thedisclosures required by generally accpeted accounting principles.If the omitted disclosures were included in the financialstatements, they might influence the user's conclusions about theCompany's financial position, results of operations, and changes infinancial position.

I am not independent with respect to Ajax Company. Thislack of of independence is due to my child's ownership of amaterial direct financial interest in Ajax Company.

This report is intended solely for the information anduse of the Board of Directors and management of Ajax Company andshould not be used for any other purpose.

1. A CPA firm has carried out an audit of the GillespieCorporation. The CPA has uncovered a material misstatement in theinventory balance. However, the CPA does not feel that this problemis so serious as to eliminate the credibility of the financialstatements taken as a whole. What wording will be used to begin theopinion paragraph of the audit report?

A. In our opinion, except for adjustments, if any, that mighthave been found…

B. The scope of our work was not sufficient…

C. In our opinion, except for the effects of…

D. Because of the effects of…

2. When an auditor issues a standard unmodified audit report,the implication is that the auditor:

A. Believes the financial statements are presented fairly inconformity with U.S. GAAP.

B. Does not know if the financial statements are presentedfairly in conformity with U.S. GAAP.

C. Believes the financial statements are presented fairly inconformity with U.S. GAAP except for a specific aspect of them.

D. Does not believe the financial statements are presentedfairly in conformity with U.S. GAAP.

3. A CPA's standard report on audited financial statements wouldbe inappropriate if it referred to

A. Management's responsibilities for the financialstatements.

B. An assessment of the entity's accounting principles.

C. The significant estimates made by management.

D. The CPA's assessment of sampling risk factors.

4. The introductory paragraph of the standard audit reportstates that the financial statements and the opinion expressedabout those statements are:

A. The responsibility of management.

B. The responsibility of the auditor.

C. The joint responsibility of the auditor and management.

4. None of the above.

5. Which of the following procedures would an auditor mostlikely perform to obtain evidence about the occurrence ofsubsequent events?

A. Comparing the financial statements being reported on withthose of the prior period.

B. Confirming a sample of material accounts receivableestablished after year end.

C. Inquiring as to whether any unusual adjustments were madeafter year end.

D. Investigating personnel changes in the accounting departmentoccurring after year end.

6. The date of the management representation letter shouldbe

A. The same date as the latest interim financialinformation.

B. The same date as the latest bank reconciliation.

C. No earlier than the auditor's report.

D. No earlier than the balance sheet.

7. The audit step most likely to reveal the existence ofcontingent liabilities is

A. A review of vouchers paid during the month following theyear-end

B. Mortgage-note confirmation

C. Accounts payable confirmations

D. An inquiry directed to legal counsel

8. The Form 10-K filed by management of a public companyincludes a section on management’s discussion and analysis(MD&A) in addition to the annual financial statements. Which ofthe following best describes the auditor’s responsibility for theMD&A information?

A. The auditor must perform sufficient appropriate auditprocedures to opine on the MD&A information.

B. The auditor has no responsibilities related to the MD&Adisclosures.

C. The auditor must read the MD&A information to determineif there is any material inconsistency with the audited financialstatements.

D. The auditor must provide a disclaimer of opinion related tothe MD&A information.

Weekly leaderboard

Home
Homework Help 3,900,000
Accounting 580,000
Start filling in the gaps now
Log in